Student fees and Cable ties

Hmmn.  Having been largely cheered by the scenes of student demonstrations yesterday, I’ve turned to thinking this morning about Vince Cable’s dissembling, dismal apologia for his decision to increase the UK debt burden and consign most of the UK’s higher education system to terminal mediocrity, when interviewed by Kirsty Wark on Newsnight last night.

It’s clear that Cable has crossed the rubicon from self-appointed uncle-at-large and eminence grise of the Liberal Democrats to a grouchy champion for Tory radicalism, and that there is no going back.  Whatever about “Stalin to Mr Bean”, Cable has gone from Great Uncle Bulgaria to Hamlet's Uncle Claudius.

Nick Clegg, has got a fair measure of the opprobrium he deserves.  Only ever a tepid made-for-TV cipher, he now looks pallid, tired and bleary eyed. He Can’t Go On Like This etc.  However, judging from Cable’s shrill, professorial testiness at the dispatch box yesterday (perilously perched glasses and all), he is actually rather enjoying himself.

Witnessing Cable over the last six months has been like watching the Wizard of Oz in reverse, with Cable playing the Tin Man, the Scarecrow, and the Lion, shedding heart, head and courage back along the yellow brick road from principle to power. 

He's not alone though: check out staunch, principled abtainer Simon Hughes only a few months ago:

Mr Hughes said the message he was getting from inside government was that a “progressive” proposal replacing fees with a new system had almost been agreed. “We are nearly there, but we just need to edge intelligent, radical, progressive funding of higher education over the line.” He added: “For me, that is the first huge bridge to cross, and, if we manage to cross it, we will have honoured our first really important commitment.”

"Nearly there". "Commitment".  Hmmn. An abstention was not good enough.

I never bought the idea that Cable was some sort of visionary when it came to the credit crunch: as one MP said (ripping off a line originally aimed at US economist Paul Krugman) “he predicted nine out of the last one recessions”.   But Cable at least had a rational critique of Conservative sado-monetarist fiscal policy before the election, and a sane idea for solutions in respect of the economy.

Once the coalition deal was done, Cable sold out on economics, the one thing he had some clue about, and was left alternately to wander the corridors of Whithall dribbling on about stupid ideas that the Treasury ignored, and apologise for things he once denounced unequivocally. 

I donlt belive that Cable underwent some sort of half-baked Damascene conversion to Mellonite austerianism and free-marketeering liberal education policy in the space of a couple of rounds of tea and buscuits with ‘swervin’ Mervyn King.  This is too weird, because New Keynesians really bloody hate Hayekian/Mellonite types, and the modish fad for austerity is heresy to anyone with an understanding of Keynes’s work, which Cable clearly has/d and advocated loudly.  Adopting a macroeconomic economic philosophy is more deeply-embedded than taking a position on this or that issue of the day: it informs how you think about most things political.  You can’t love Eugene Fama and vote Labour.

Understanding that conversion is I think the key to understanding Vince Cable.  He really, passionately believes in something (graduate tax, mansion tax, New Keynesian economics, abolition of tuition fees) until he doesn’t.  He opposes the received wisdom of the day, until he is in a position to actually oppose it, then he won’t.  He is the stubborn and intellectually brave thorn in the side of the establishment view, until he isn’t. 

This cannot be explained by the norms of collective responsibility and so on.  Any argument for this continuing coalition politics has merit only on matters of grave national importance, i.e. budgetary matters, where political divisions impact on markets, and so cost of borrowing, and so on.  Defence is another example (though this has already been travestied at the dispatch box by Clegg). 

The exigencies of coalition government won’t do either.  Being in a coalition doesn’t mean “agreeing with what the big party say”.  It means, as it does in other countries, vigorous, open intra-governmental debate, leading to an agreed outcome.  Cable loves saying how we don’t get the “new political reality” of coalition, when it’s him that misunderstands what it means to be in a coalition.  Contra Cable, it doesn’t mean Cameron-say-Cable-do, or small party follow big.  A cursory examination of our European neighbours and Israel - the most coalition-y of all coalition governments – shows this is not the case.

What we have in Cable’s big change is no more than the usual pliable pusillanimity and a fair degree of mental vacuity offered in exchange for power.  This weakness is all the more dismaying in a man of Cable’s age and purported integrity than in say, tween-faced flannel-merchant Danny Alexander or lukewarm Tory David Laws.  Cable won’t have a chance to get his reputation back. 

Instead, he will have to blink and mutter his way through, ignoring the bald fact that the electorate does not value his presence in power if he is doing the wrong thing; a things that only the Conservatives wanted, and the electorate denied them the mandate to do in favour (so they thought) of something else.  No such luck, electorate. We have a senior member of the only major party with a rock-solid, widely-known student fees policy – incidentally, the only policy the Lib Dems had worth a damn -  repudiating that policy because, um, he is in a position to make student fees policy. 

In an election season, older and less telegenic bods like Cable are fond of saying “let’s focus on policy”.  Why bother?

To pontificate generally, democracies can operate either as systems by which candidates are voted in, on the basis of who they are and what they will do, or out, on the basis that they are deemed to be crap.  There’s obviously a bit of both in all elections, but Cable’s conduct leads us further down the road of being an out democracy.  This is not good.

Going back to the Newsnight interview, Cable resorted to his favoured way to explain the explicit and total abandonment of his party’s only flagship policy thus: “now we are in government we have to make tough choices”.

First, it would have been “tough” to say “I took people’s votes on a distinct policy basis, and I can’t give them back.  My colleagues and I drew up a manifesto and went out of our way to further this with a personal pledge, signed on university campuses, a pledge made after the Browne report was in full swing and its direction of travel was documented.  The miniscule size of the higher education – my department - budget  relative to GDP means this is not an issue connected meaningfully with budgetary matters.  In a coalition, we can govern and disagree.” 

Second, I don’t think that Cable can sensibly claim that it is “tough” to hang on to the morning-coattails of his coalition partners in adopting the Browne report that was already baked-in-the-cake, then muttering through gritted teeth about the inevitability of it because “we are in a time of austerity” as if austerity was a natural disaster instead of a policy visited upon us by his own government. 

Third, there’s a logical inconsistency here.  If, as Cable says, there’s no choice but austerity, then there’s no “tough decision”: it’s all TINA.  

Fourth, in an alternative, Cable admits tacitly that the Lib Dems hitherto lived in a policy fairyland of marshmallow clouds and gumdrops and rainbows and a unicorn for every toddler, but now have to get “tough” on ridiculous ideas like free higher education.  After all, the only total joke countries like Sweden have free tertiary education, and look at what a godawful retrograde dump that is.  It’s not like the Cameroons bleat on about Sweden constantly or anything.

Fifth, I remind the gentle reader that we are taking a lecture on “tough decisions” from someone who, along with half his party, could not make up his mind until the last minute to even vote for legislation he was sponsoring.  This absurd idea was floated via the national media for the internal benefit of his small, tertiary party, on the matter of the wholesale repudiation of the only Lib Dem policy anyone (other than those who wrongly think it decent to wear sandals away from a beach or Roman re-enactment society) gave a shit about.

Sixth, a wonkish rant on policy instead of politics. I cannot see how the central plank of the new student finance scheme is “tough” at all.  All it does is take a cheap swipe at higher education spending and kick a fiscal can down the road.

The Maven of the Mortgage-debt Meltdown is to hawk cheap credit, borrowed elsewhere, to people who might not pay it back.  It irritates me that a coalition led by a pair of alleged fiscal conservatives and joined by a recent convert to the tribe has made no effort to ensure this scheme is fiscally sane.

Let’s take in some background.  The last recession (which is not over) was caused by a crisis of excessive and exotic leverage. This included the widespread practice of issuing debt to person A in order to invest in debt-related things from person B (i.e. a type of carry trade).  Think of credit card companies, the shadow banking system, RBS and so on.  This was popular in the boom is foreign-currency mortgages.  People took out a mortgage in Yen to buy a house in Sterling, and repay it in Sterling, because borrowing money in Yen was a lot cheaper.  The UK is now doing this to Ireland, borrowing several billion Sterling at 3 point something percent and lending it to Ireland, a Euro economy, at 5 point something.  Now, all these things involve risk because they punt a money obligation into the unknowable future in return for prospective profit.  This sort of thing is all well and good, until it isn’t.

The new student finance scheme is another version of this medium-term gamble: state borrows from money market at rate A; student borrows from state at rate B, repaying an uncertain amount.  The government has punted the cost of higher education, which remains a state cost, from the present to the future.  If government borrowing costs rise and/or the cost of higher education increases in real terms, and/or the earning power of graduates reduces, then the margin between input and the output goes down, and the carry trade becomes unsustainable. 

Way back in 1988, Krugman wrote about a “Debt Laffer Curve” (in the context of sovereign debt – e.g. Ireland today).  The theory is that, past a certain point, the more debt you held became worth less and less because, given the borrower cannot get credit elsewhere, the amount of debt reduces the likelihood you will get paid and the open market value of the debt you hold.  £27,000 debt attracting a commercial rate of interest paid back at the rate of a few quid a month for someone on £25,000 a year sounds like something ending up on the downside of the Debt Laffer Curve to me.

It’s clear from the government’s own paper that nobody knows if the scheme will work even in benign conditions, because the parameters (e.g. the repayment threshold of £21,000) have been set for political reasons.  I can’t see the new scheme lasting unmolested, even for five years.   The scheme is just too ripe for future tinkerers, faced with their own “tough decisions”, to resist: a rise in the interest rate levied; the reduction of the payment threshold either absolutely or in real terms; or a further increase in the principal borrowed, once the vestigial tail of state higher education funding is eventually cut, all very easy to do. 

One way this could get solved is for many universities to go bust and/or for a profusion of yet more substandard courses called degrees but lacking any rigour or reputation being created on the cheap.  The alternative to worsening the deal for students in this way is for general taxation to plug the gap i.e. a bail-out.  One thing is for sure – it won’t get more favourable for students as time goes on.

Now, debt-ridden nonsense policy is to be expected from recycled relics like David Willetts, who has priors on irresponsible debt having been an early champion of PFI.  It is not the sort of policy to be rushed through parliament by someone reticent even to vote for it.

Vince Cable built his political reputation on a debt crisis.  He should lose it on the back of the further one he created yesterday.